Guatemala is expected to delay the implementation of an agreement with the U.S. that would alter the textile provisions of the Central American Free Trade Agreement (CAFTA) until the U.S. agrees to further alter CAFTA in a way that would allow Guatemala to phase out tariffs on beer over 15 years rather than immediately eliminating them.

According to a Guatemalan official, the Guatemalan congress will not approve the textile deal with the U.S. until the issue of beer tariffs is resolved. He also said that he has been in correspondence with U.S. officials on the issue.

According to a USTR spokesperson, Guatemala has expressed interest in resolving the beer issue, but it was not something that needed to be settled for CAFTA to enter into force. He said that no formal meetings with Guatemala were planned at this point on the beer issue, and said the U.S. is hoping Guatemala will act in "good faith" on the implementation of the agreement.

The USTR spokesman also said he had not heard of Guatemala's intention to hold back the textile deals from the Guatemalan congress until the beer issue is resolved.

Guatemala implemented CAFTA on July 1, and as part of that agreement immediately eliminated all beer tariffs, since a previous Guatemalan government agreed to take this step. It appears that Guatemala is hoping that delaying the implementation of the textile changes, which were demanded by the U.S. puts enough pressure on the U.S. to agree to a beer tariff deal.

CAFTA as negotiated held that material used to make pockets from third countries could be used in apparel entering the U.S. duty free from CAFTA countries, but this was changed to material of U.S. or regional origin in a last-minute deal to secure votes in the U.S. Congress. As a result, the U.S. had to negotiate compensation for CAFTA signatories, and the U.S. and Guatemala in late June agreed that Guatemala would be allowed to ship apparel duty free to the U.S. even if it is made from foreign fabric.

Both the rule of origin change on pocket lining and any later deal on beer tariffs would be sent to the Guatemalan congress for approval.

The Guatemalan official said that he is awaiting new proposals from the U.S. on what Guatemala might give up in order to get a 15-year phase out on beer, but that Guatemala is not offering proposals at this time. He also said U.S. beer exporters are not interested in the Guatemalan market because opportunities for sales there are so small, and that for this reason he did not believe that reaching a deal on beer would be difficult, and could possibly even happen in August.

He added that Guatemala had tried to settle the beer issue before the implementation of CAFTA in order to ensure that some sort of deal was reached, but that ultimately a variety of domestic political and industry pressures, including pressure from the Guatemalan textile industry, resulted in the implementation of CAFTA with the beer issue still pending.

Regardless of Guatemala's intent to delay the pocket lining changes, one private sector source speculated that Guatemala could be two to three months away from making this change anyway. This is because the changes might not be made until after the U.S. consults with all CAFTA signatories to discuss what compensation the U.S. paid to each signatory, and to arrange that all signatories receive every U.S. concession that was made during the process.

This source also predicted that the U.S. Congress would try to approve the pocket lining deal sometime next fall.